Some clients want to keep the benefits of an ISA while also planning for Inheritance Tax (IHT). An ISA wrapper does not protect against IHT, which means investments or savings held within an ISA could increase the tax bill for beneficiaries. However, there are ways to make an ISA more tax-efficient for estate planning purposes.

A tax-planning solution

The adviser recommends transferring the existing stocks and shares ISA into an AIM ISA that invests in shares qualifying for Business Relief (BR).

These investments can qualify for Inheritance Tax (IHT) relief after two years, provided they are still held at the time of death.

This approach allows the client to:

• retain ISA tax benefits, including tax‑free income and growth
• reduce the estate’s IHT liability
• maintain the potential for long‑term investment growth

If you have clients who want to maintain their ISA benefits while planning for Inheritance Tax, this could be a valuable solution. 

How it works in practice

Summary

For clients with a substantial ISA portfolio, the tax advantages of the ISA wrapper do not extend to Inheritance Tax. Transferring to an AIM ISA invested in Business Relief-qualifying shares may reduce IHT liability after two years, provided qualifying conditions are met, while retaining the ISA’s income tax and capital gains tax benefits.

Try our Inheritance Tax Calculator

Quickly estimate Inheritance Tax liabilities and model the impact of Business Relief strategies with our easy-to-use calculator. Designed for financial advisers, it helps bring planning to life and support client conversations.

This tool is strictly for the use of financial advisers only.

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